Layoffs and uncertainty taint real estate market

Although sales are slowing, Houston still rolling with punches

Paul Cummings in his one bedroom apartment Wednesday, April 13, 2016, in Houston, Texas. After 20 years of renting he's considering buying his first house but is unsure how to navigate the housing market. ( Gary Coronado / Houston Chronicle ) less

Paul Cummings in his one bedroom apartment Wednesday, April 13, 2016, in Houston, Texas. After 20 years of renting he's considering buying his first house but is unsure how to navigate the housing market. ( ... more

Photo: Gary Coronado, Staff

Image 2 of 6

Paul Cummings turned to his 1,098 friends on Facebook for advice on whether to buy a home. After much consideration, he plans to spend summer and fall in an "intensive cost-comparison search period."

Paul Cummings turned to his 1,098 friends on Facebook for advice on whether to buy a home. After much consideration, he plans to spend summer and fall in an "intensive cost-comparison search period."

Photo: Gary Coronado, Staff

Image 3 of 6

Paul Cummings in his one bedroom apartment Wednesday, April 13, 2016, in Houston, Texas. After 20 years of renting he's considering buying his first house but is unsure how to navigate the housing market. ( Gary Coronado / Houston Chronicle ) less

Paul Cummings in his one bedroom apartment Wednesday, April 13, 2016, in Houston, Texas. After 20 years of renting he's considering buying his first house but is unsure how to navigate the housing market. ( ... more

Photo: Gary Coronado, Staff

Image 4 of 6

Paul Cummings, who is renting a one-bedroom apartment in Houston, is considering buying his first house but is unsure how to navigate the housing market.

Paul Cummings, who is renting a one-bedroom apartment in Houston, is considering buying his first house but is unsure how to navigate the housing market.

Photo: Gary Coronado, Staff

Image 5 of 6

Image 6 of 6

Layoffs and uncertainty taint real estate market

1 / 6

Back to Gallery

Paul Cummings has a degree from Rice and a corporate job with a good salary. He is proficient in multiple languages. But there's one thing in his life he can't seem to figure out: whether to buy a house.

Last month, the 43-year-old Houstonian posted a desperate plea on Facebook in which he outlined his predicament to his 1,098 friends. After 20 years of renting, he's considering buying his first home, but he's worried about the timing.

"In Houston, the energy sector is in a slump, but the real estate market seems resilient and expensive, still a seller's market," he wrote. "Would it be wise to hold off, rent for another year, to wait for the market to become friendlier to buyers?"

Many other Houstonians are pondering the same questions as they navigate the uncertain waters of the real estate market: Are home prices going to crumble or will they stay high? Will mortgage rates rise suddenly or fall even more? Just how bad is the Houston economy going to get?

After several years of unbridled job and population growth that led to a very unHouston-like run-up in home prices, the housing market has hit its first big stumbling block since the last recession. Sales have fallen in recent months, and houses are sitting on the market for weeks or months rather than days.

With the upstream oil industry experiencing its worst downturn in decades, Houston's once-enviable employment machine has stopped producing jobs - key to a healthy real estate market. After adding more than 120,000 jobs each year for the past three, Houston as a whole actually could start losing jobs.

But those who expect housing to crash like it did back in the 1980s are more likely to witness a softer landing - in 2016, at least.

"I think that Houston is rolling with the punches about as well as could be expected," said Mark Vitner, senior economist with Wells Fargo. "Maybe better than expected."

The slowdown this year will be uneven, primarily hitting parts of town heavily populated by white-collar oil and gas workers. Neighborhoods around the Energy Corridor to the west and north to The Woodlands are already seeing houses sit on the market much longer than they would have a year ago when the combination of low inventory and high demand resulted in a first-come, first-served market where only the most aggressive buyers ended up with homes.

Waited to buy

Sorry, but your browser does not support frames.

Those who were shut out are now helping soften the blow of a weak economy.

Jennifer White and her family moved to Houston from Kansas City 3½ years ago after she accepted a job as head of a private middle school in southwest Houston. She and her husband signed a two-year lease in Sugar Land because they liked the schools for their two children. When it was time to start looking for a house to buy, properties were selling fast and for more than the asking price.

They made an offer on a home in New Territory with a big yard and four bedrooms, but they lost it to a bidder who offered more than the home's appraised value.

"We were not prepared for the real estate race happening," White said.

She and her family decided to wait another year, and in February they closed on a house that "needed some TLC" in the same neighborhood. It had been on the market since October.

If the Whites represent one side of Houston's housing story, their neighbors, the Worts, represent the other.

After 22 years in their suburban home, Eric Wort and his family are moving to Louisiana. Wort, a financial analyst who works for an oil and gas company, is being transferred as part of some corporate reshuffling.

Though his family is sad to leave Houston, Wort feels lucky he was able to keep his job amid the widespread cuts being made in the energy industry.

He's not too worried about selling his home because he's getting help from a relocation company, and his family has put a lot of upgrades into the five-bedroom property. It has a pool, an outdoor kitchen and a "beautifully landscaped backyard."

If he could, Wort would rent his house in hope of being transferred back to Houston in a few years, but there appears to be a glut of rental houses for lease in his neighborhood.

"We can't take the chance of double house payments," he said. "It's riskier now because there seem to be fewer people moving in."

Houston's real estate market began showing stress early last year, and monthly sales reports have shown declines for much of the winter and spring.

For the year, though, single-family home sales across the region were off just 2 percent in 2015, compared with 2014, the Houston Association of Realtors found in an analysis of home sales and prices for the Houston Chronicle. The dip followed a record year when buyers purchased 75,319 homes.

Builders pulling back

Even with the decline, the median price of a home hit a new high of $212,000, up a striking 37 percent from 2011.

"What we've seen for the last four, five years is kind of unprecedented, these rapid price increases," said Adam Perdue, a research economist at the Institute for Regional Forecasting at the University of Houston's C.T. Bauer College of Business.

He also doesn't think the possibility of rising mortgage rates should be a major concern for buyers.

If the Federal Reserve raises interest rates, and that in turn causes mortgage rates to rise, it will mean the economy is doing better. And higher rates could lead to slightly lower real estate prices.

"It just means everything balances out," said Perdue, who has been shopping for his own house this year.

The recent housing boom was focused on the high end of the market, where demand is now slowing amid uncertainty in the energy sector and losses in the stock market.

"The half-a-million to $800,000 or $900,000 area here seems to be a little slower because those are the midmanagers, and even though they may not be laid off, in their mind they are like, 'OK, we're not changing anything. We're just going to sit tight,' " said Gary Giles of Keller Williams Realty-The Woodlands and Magnolia.

On and off for the past year, Giles has been running an advertisement in the local weekly newspaper and on marketing postcards promoting a "layoff protection plan" to those thinking about selling.

The plan is a provision in his listing agreement that says if the seller has been laid off or becomes laid off during the listing period, Giles will provide up to 1 percent of the sales price for closing costs.

So far, he said, "no one has called."

Builders that had been trying to catch up with the red-hot demand of recent years are now starting to pull back.

Miami-based Lennar Corp., the biggest builder in Houston, reported a 3.5 percent decline in new home orders in this region, with sales incentives averaging $33,800 per home, compared with $22,400 a year ago.

Home deliveries increased among all its homebuilding segments except Houston, primarily due to less demand "driven by volatility in the energy sector," the company said in a quarterly report.

Even though Houston's economy has more offshoots than it did 30 years ago, oil remains the city's lifeblood. When the price falls, other industries feel it.

"There's a huge multiplier affect," said Vitner, who thinks Houston will lose jobs this year. "It affects legal, financial, engineering. It's a whole lot larger than many people realize."

But there's a growing consensus among market watchers that oil prices have already bottomed out or will do so this year.

In order to avoid a possible mild recession in the first quarter of next year - an employment drop of about 1 percent - the price of crude oil should have stabilized and risen to $60 per barrel by early 2017, said Bill Gilmer, director of the UH Institute.

But the tide needs to turn soon.

'Running out of time'

Come next year, the heavy industrial construction activity bolstering the east side of town will start to wind down. Construction workers building new ethylene cracker plants soon will be moving on to other jobs outside of the city.

"We're sort of running out of time to make this turn," Gilmer said. "It's kind of like a big ship. We need to give some steering orders pretty quick."

Gilmer said the real estate market hasn't seen the full impact from the Houston energy workers who lost their jobs in the second half of last year. But the fallout may be mild as many of the layoffs have been in white-collar workplaces among employees who make high salaries and have spouses who are still employed.

"It may be a pinch, but I doubt we'll see the foreclosures," Gilmer said. "I think people will have equity in their house this time around."

After talking to his friends and studying the lengthy string of comments that followed his Facebook post, Cummings has decided to sign a new six-month lease at his Galleria-area apartment. He plans to spend summer and fall in an "intensive cost-comparison search period." He'll follow the market in the Garden Oaks/Oak Forest area, Spring Branch and the near northside.

"We're going to test the crowd-sourced conventional wisdom regarding housing trends trailing employment by six to 12 months," he said.

Gilmer would approve of his strategy.

"If my daughter asked me tomorrow, I'd say, 'You should wait a while,' " he said, " 'because you'll find some bargains out there this time next year that aren't going to be here now.' "